Income Statement Review: IBM and Dell

Subject: Company Analysis
Pages: 1
Words: 318
Reading time:
2 min
Study level: College

Arguably, the most important number in a company’s income statement is net income — the fundamental indicator of financial health. A positive net income means that the company earns more than it spends. IBM recorded $5,7 billion net income in 2017, $8,7 billion in 2018, and over $9,4 billion in 2019 (Yahoo Finance, 2021a). After the COVID-19 pandemic hit, IBM lost a significant amount of net income, achieving about $5,6 billion in net income in 2020 and $5,33 in TTM (Yahoo Finance, 2021a). The overall net income has decreased; however, IBM still maintained a substantial positive net income.

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On the other hand, DELL did much worse in terms of net income during the COVID crisis. The company finished 2019 with a $2,3 billion net loss (Yahoo Finance, 2021). Moreover, a year before, DELL showed an even worse net loss of over $3,7 billion (Yahoo Finance, 2021). Although DELL improved its results in 2020 and 2021, it still falls behind IBM with $4,6 and $3,25 billion in net income, respectively (Yahoo Finance, 2021). While DELL’s total revenue is significantly higher than IBM’s, the high cost of revenue nullifies its advantage and leads to a lesser net income.

Overall, IBM currently does better than DELL, despite lower total revenue. DELL constantly fails to keep the cost of revenue under $60 billion, while IBM manages to hold it around the $40 billion mark (Yahoo Finance, 2021a). As a result, IBM can afford to have more operating expenses, particularly in Research & Development department. For instance, in 2020, IBM spent over $6,3 billion on R&D, while DELL could afford only $5,275 billion (Yahoo Finance, 2021). In addition, DELL could suffer from the supply chain disruptions during the COVID pandemic, while IBM, which nowadays primarily specializes in software development, faces a lesser risk in that regard. As a result, IBM can keep the cost of revenue relatively low and develop its products better.

References

Yahoo Finance. (2021). Dell Technologies Inc. (DELL). Web.

Yahoo Finance. (2021a). International Business Machines Corporation (IBM). Web.